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HSA Health Plans After Four Years.

Benjamin Zycher, a Senior Fellow, Manhattan Institute for Policy Research has published a paper called: HSA Health-Insurance Plans After Four Years: What Have We Learned?In this paper, Zycher notes that it has now been four years since the legislation was passed allowing the establishliment of Health Savings Accounts (HSAs) which are are financial instruments linked to high-deductible health insurance plans (HDHPs). They allow households to set aside tax-free funds for routine medical expenses.

The report says that these policies are now used by over 6 million U.S. residents and that their use is growing at a rate higher than the one at which the assets in individual retirement accounts (IRAs) accumulated in the first years following their authorization. The researchers also found that HDHPs cover preventive-care services (physicals, immunizations, and other recommended screenings) at a rate that other types of insurance do.

This paper’s chief findings regarding HSAs are the following:

The number of individuals covered by HSA-qualified and high-deductible health plans, as a proportion of all those covered by private insurance, shows a rate of growth slightly higher than the rate at which the quantity of assets in IRAs in their early years reached an equal fraction of total retirement assets. (The latter criterion is used in the absence of enrollment figures.) The early data on defined-contribution assets as a proportion of total retirement assets are more difficult to interpret, but the data on the whole suggest that HSA-qualified health coverage has the potential to expand at least as sharply over time as IRAs and defined-contribution retirement plans did, assuming conducive legal and regulatory developments.

Suggesting even further room for improvement, survey data indicate that relatively low percentages of consumers are “extremely or very” familiar with HSA-qualified health coverage or find such plans “easy to understand.”

Less than half the funds in HSA accounts in 2007 were expended on health care, demonstrating these accounts’ viability as savings vehicles.

Premiums for HSA-qualified policies are significantly lower than those for other types of plans-by about 10 percent to 40 percent.

A wide range of preventive-care services counts toward plan deductibles (or are covered on a “first-dollar” basis) under most HSA-qualified policies. Unsurprisingly, the rates at which enrollees in HSA-qualified plans draw on preventive care or rely on treatment of chronic illness are roughly equal to the rates shown by policyholders in comprehensive plans.

While the ceiling for out-of-pocket spending by holders of high-deductible plans (including HSA-qualified plans) covering workers and their families tends to be higher than it is for other types of health plans (although the available data do not allow an estimate of how significant that difference is), there is some evidence that higher deductibles are almost entirely responsible for higher out-of-pocket expenditures. Out-of-pocket expenditures are, of course, only one element of total plan costs. The data for coverage purchased in the non-group market are more mixed.

For both covered workers and individuals, deductibles for HSA-qualified policies are significantly larger-by multiples of 1.2 to 4.7-than the deductibles for the other types of health coverage plans. But the deductibles for HSA-qualified plans recently have risen much more slowly.

Because spending on chronic illness, unlike spending on prevention under most HSA-qualified plans, does not enjoy first-dollar coverage, the chronically ill would be likely to draw down their HSA funds before they have time to accumulate. Even so, the right combination of a given plan’s deductibles, its out-of-pocket ceiling, and the marginal tax rate of a chronically ill person could make HSA-qualified coverage a better bargain than a traditional comprehensive insurance plan.

This is one of the most thoroughly documented studies of HSAs that I have seen published anywhere. This is certainly a keeper document for anyone interested in these types of health plans. Click here to link to the page and bookmark it.